Group Bank is a system of banking under which there will be holding company controlling the subsidiary companies which carry out banking business. In some cases, both the holding and subsidiary companies may carry out banking business. An example in India is SBI which has many subsidiary banks such as State Bank of Mysore, State Bank of Indore, State Bank of Hyderabad, State Bank of Bikaner and Jaipur, State Bank of Patiala and State Bank of Travancore. These subsidiaries carry out banking and other operations such as leasing, merchant banking and so on.
Merits of Group Banking: Following are the advantages of Group Banking:
1. Efficient Management: The holding company stimulates efficiency of the group banks. The group banks are efficiently managed being under the overall control of Holding Company.
2. Adequate Liquidity: There is high degree of liquidity of the concerned group being the whole group of banks is controlled and managed by one parent company. The member banks have to maintain the requisite degree of liquidity.
3. Economical: It is an economical system of banking, because many expenses such as advertisement and publicity are done collectively be the group as whole under the direct control of the holding company.
4. Specialization: In Group banking, different subsidiary companies tend to specialize in different aspects of banking. This promotes the overall efficiency of the group system.
Disadvantage of Group Banking: Main demerits of Group Banking are as under:
1. Right Control: There is rigid control in Group Banking due to lack of flexibility which often leads to corruption.
2. Less Mobility of Funds: Funds are less mobile in Group Banking than Branch banking system.
3. Few Branches: Group Banking has relatively very few branches as compared to Branch Banking system.